Should You Beware of the January Effect in the Stock Market?

Should You Beware of the January Effect in the Stock Market? 
Maybe, but Maybe Not!

Stock Market Update:

As I mentioned, here come the noises of the January effect. You will see a lot of news blabs-n-blogs about the so-called “January Effect”: Where the saying goes, “As January goes so does the rest of the year.” Reason?  The simple answer is Fear (False Expectations Appearing Real)! But, if you dig just a little bit deeper, you will see that it is really people trying to do “the impossible”: time the market. 

Why January, you ask? Well, there are few studies that show since 1950, however the market performs in January, so it will be for the next 11 months of the year.

In other words, if you did very well in the markets for January, you are going to have a good year, or even worse, if you lost money  in January, you are going to have a very bad year.

So, since we just had a bad January for the start of 2014,you may as well sell off, shutdown, go home and return your money to under the mattress type portfolio.

Any intelligent investor will tell you that this not only foolish but, this as close to voodoo investing as you can get.  

Yes, this is just another foolish attempt at the impossible; “time the stock markets” and it really never works anyway.

It also reminds me of the October Syndrome where, because the stock market crashed a few times in the month of October, people think the month is jinxed. So, for the next 85 years, foolish investors hated October and they started to plan ahead and sold off in September, and for quite awhile September was the very bad month – so guess what happened? Yes, you are right, it progressed to August. And I am 100% sure after a few more bad years of August, it will be July.

This reminds me of an old joke by Mark Twain, when he was asked which is the worst month for stocks and he said, “October, November, December, January, February, March, April, June, July, August and September.”

What he was trying to say his that any month can be bad, and no one should be foolish enough to try and invest month by month. One needs to have a very long-term view for the stock market.

A wise investor would never put money that s/he needs in the next 12-60 months in the stock market. This bears repeating: Money that you will need in the next 5 years should never be put at risk.   

Rethink and have smarter and safer perspective  of a down (correction) stock market

A down (even one that is crashing) market is very good for you if you own good quality dividend-paying stocks AND you’re are always reinvesting your dividends quarterly at a lower price in such companies as; AT&T, (T) BPplc (BP), Xcel (XEL), Kraft Food (KRFT), General Electric(GE) , MasterCard (MA), Pfizer(PFE), 3M Company (MMM), Norfolk Southern Corp (NSC), Dow Chemical (DOW), Genuine Parts (GPC), Intel Corp (INTC), CME Group (CME), Realty Income Corp. (O) and Coca Cola (KO) etc.

Just think if you do not pay your light bill, Xcel or ComED will shut off your power. Hundreds of thousands of people put BP gas in their car every day, almost every household in America and around the world buys a Kraft Food products every second (I have yet to see a kid who does not like “Mac & Cheese”), people will be drinking Diet Coke for the next 2,000 years.

I keep repeating this, but if your grandparents had bought just one (1) share of Coca Cola for only a measly $40  when they started paying dividends in 1920 and they just let it sit and reinvested all dividends, it would now be worth $10.8 Million today as of February 06, 2014. (see link below)

Thanks and have a Magical  day.

Love Always


Sherwin Brown

About Sherwin Brown

Sherwin has been an entrepreneur since he was twelve years old. He currently teaches, writes, and speaks to people about how to improve and safeguard all aspects of their financial portfolios.